The CEO As Strategist

By J. Daniel Beckham

The CEO as Strategist

The chief executive officer's job is to orchestrate a value advantage.

At nonprofit and for-profit organizations alike, board members consistently identify the most important characteristic they seek in a CEO: an ability to make and execute decisions that are strategic. Strategic decisions are distinguished by their overall importance to the sustainability of the organization and the extent to which they involve uncertainty and resistance.

The chief executive's job is not operations, finance, quality or marketing. If it were, there would be no need for a chief operating officer, chief financial officer, chief medical officer, chief marketing officer or any of the other chiefs that populate the executive suite. The chief executive's job is to orchestrate the capabilities embodied in these functions to generate a differentiating and meaningful advantage in value.

The value hurdle in a market is set by competitor capabilities and consumer expectations. It is a constantly rising bar. Cross that threshold by offering services that are different in a meaningful way and you have an advantage. Such an advantage is, of course, multifaceted, composed of a complex mix of ingredients including experience, price, cost and outcomes, to name but a few. Orchestration of sustained advantage in the face of uncertainty and resistance requires strategy. Strategy is a CEO's reason for being.

When an executive ascends to become a CEO, he or she leaves behind functional responsibilities and takes on a role that is at its heart predominantly strategic. This requires a transition from management of actions to management of interactions. The shift in leadership responsibilities can be characterized by the difference between a blueprint and a recipe. A blueprint is specific, prescriptive and static in its details. A recipe is less directive and involves the interaction and sequencing of a variety of ingredients and actions to result in a taste advantage. There's judgment involved. The strategic role of the top executive involves formulating and executing a complex recipe in a highly dynamic environment. As a result, the recipe must be constantly adjusted — a little more salt, less heat, more butter, longer in the oven.

Lose the Ego

To be effective as a strategist, CEOs must cultivate five characteristics in themselves: insight, openness, humility, self-confidence and clarity.

Insight. Superior insight demands a combination of experience, perspective and acute assessment. The quality of insight drives the quality of judgment. The quality of judgment drives the quality of decisions. And the quality of big decisions is what boards pay CEOs to deliver. Insight is not a function of age; it is a function of accumulated experience. There are 30-year-olds who have accumulated much more relevant experience than individuals twice their age. The young executive may have led three startups, for example; the older executive, none. Or she may have been engaged in a more fiercely competitive industry.

Perspective describes the vantage point from which you see a decision. Get too close and you're lost in the trees. Get too far and you won't see the wisps of smoke from smoldering leaves ready to explode into an inferno.

Perspective is also a function of angles. Look at the forest from one angle and it may look narrow, but look from another and you see it's miles deep. Business is one angle. History, biology and physics are others. For example, a "backfire" is an insight firefighters developed battling forest fires; to beat a fire you often have to start a fire. Setting a backfire in front of an advancing forest fire deprives it of fuel and often will cause it to burn itself out. A variety of perspectives from a variety of altitudes and angles enriches and fortifies insight.

Acute assessment involves anticipating how alternative decisions may play out. It is insight applied. It often passes as intuition. But intuition is invariably shaped by experience and perspective. Acute assessment is the ability to see what's important in a situation and then make a timely decision. It is the captain who, standing on the ship's deck, can see, smell and feel the approaching storm only hinted at on his radar and who then makes the decision to change course.

Openness. An effective CEO is curious. He or she asks, "Why?" As Peter Drucker once suggested, "Great leaders ask questions. The right questions."

Asking questions is evidence of openness to new insights. I once had the privilege of sitting down for lunch with Phil Kotler, Northwestern University's esteemed marketing strategist, along with a group of young executives. I was surprised that Kotler spent most of his time asking questions — this from a man who might easily have been presumed to have all the answers. Curiosity is also evidenced by books and articles read. There is a remarkable dearth of books on the shelves of many top executives. No organization can learn at the speed of change if its top executive isn't open to ideas.

Too many executives quit learning either out of ego or apathy. When they calcify, their organizations calcify. In the stable status quo environment that characterized the health care industry through the late '80s, "painting the halls and staying out of the way" was often good enough. As the rate and extent of change increased, however, so did the uncertainty and resistance that characterized most markets for health care. This change in change demands CEOs who can keep generating value even when the goalposts are moving.

Most hospitals and health systems have benefited from residual staying power in an industry historically not highly subject to the forces of a competitive marketplace. The perverse economics of health care characterized by little transparency or sensitivity to price and quality, as well as considerable insulation from the pressures of consumerism (including convenience), enabled many hospitals to run on cruise control and pile up dollars in reserve.

In many cases, this phenomenon robbed them of agility and unity, fulfilling a prediction by UCLA strategy professor Richard Rumelt: "Relying on the profits accruing to accumulated resources, they will lose the discipline of tight integration, allowing independent fiefdoms to flourish and adding so many products and projects that integration becomes impossible."

Humility. Ego can blind executives to the true drivers of organizational success. As Rumelt suggested, "It is human nature to associate current profit with recent actions, even though it should be evident that current plenty is the harvest of planting seasons long past." It also can cause a CEO to minimize or disregard durable strategies of long standing that have become fundamental to the sustained success of the organization. Such strategies are sometimes described as the organization's "Way." There is a Southwest Airlines Way, a Hopkins Way, a Mayo Way.

At the heart of an organization's Way is a combination of strategy and culture delivering a value proposition that has stood the test of time. At Southwest, low operating costs combine with employee hustle to deliver no-frills flights that business people value. At Hopkins, a rich tradition of entrepreneurial discovery has delivered for more than a century an international reputation for breakthroughs in research and leading-edge clinical capabilities. At Mayo, putting the patient first in a delivery system where all physicians are salaried and where teamwork is demanded has resulted in care long preferred by presidents, sultans and Minnesota farmers.

There is also a Cleveland Clinic Way. Anyone who has worked with its leaders knows there has been no lack of self confidence among its physician CEO, Toby Cosgrove, and Fred Loop before him. Both are internationally renowned heart surgeons. Leading the Cleveland Clinic earned them accolades. But both men held their clinic's century-old Way inviolate. That Way is routinely described as "our medical model" and emphasizes the centrality of physicians who are salaried within a multispecialty group practice.

The wisdom of its Way has been borne out by experience. When the clinic moved beyond its Cleveland base to Florida, it got hammered financially. Mayo Clinic had a similar experience. Some cows deserve to be sacred. The pressure to break with the past and do something new can be significant. It is invariably more exciting to be an architect than a housekeeper. The siren's call is often intense: "You'll leave everyone else behind!" "You'll be left behind!" "Change demands change!" "Everybody in the industry is heading in that direction!" The physicians who have led Hopkins, Mayo and the Cleveland Clinic have been humble enough to honor, preserve and build on their organization's Way.

Self-confidence. As with everything strategic, balance is a virtue. It pays to be open-minded but not so open-minded your brains fall out. The strategy buck stops on the CEO's desk.
Group decision-making and participative management run rampant across organizations today. Underpinning participative management is a presumption that group decisions are better than decisions made by individuals. This has become an article of faith supposedly fortified by research. But it's a ludicrous assertion when it comes to strategy. How would the effectiveness of a group decision ever be evaluated against an individual decision absent the results from both? And how do you identify a decision made by an individual that is then carefully positioned as a group decision through an orchestrated process of buy-in?

Participative management has its place — particularly for quality and process improvement as well as for cost-reduction. But it doesn't belong in the executive suite and the boardroom where strategies get finalized. Today, the trend toward group decision-making increasingly fosters bubble-up strategies and democratically defined strategic plans. This can result in a warm and fuzzy feeling, but it's not leadership.

There are two good reasons to solicit group input related to strategy. First, because it provides a mechanism for stress-testing strategies through discussion, dialogue and additional perspectives. And second, because it helps build communication, understanding and alignment related to the organization's most important strategic questions. But self-confident CEOs don't hide behind group process when it comes to the organization's most important decisions. They, as individuals, think through the organization's situation, then articulate preliminary strategies rather than expect them to bubble up from throughout the organization.

The appropriate stance for the CEO is to offer up the rationale for a handful of driving strategies, invite feedback, then make decisions; not to ask for a show of hands. A CEO should never embark on the development of strategies with a blank sheet and the expectation that others will fill it. Strategic responsibility cannot be delegated. The CEO is an organization's chief strategist. Others with strategy and planning responsibilities exist first and foremost to support strategy-making and execution by the CEO. This applies to the input of consultants as well. Consultants can play a vital role in designing and facilitating a strategic planning process while providing strategy input to the CEO. But the CEO should not rely on a consultant to formulate the organization's strategic direction.

Too many CEOs abdicate their fundamental responsibility to provide strategic leadership. And too many hospitals and health systems default to simply adopting wholesale models showcased as generating success for other organizations at conferences and in publications, thus avoiding the clarifying hard work that characterizes "good strategy." As Rumelt observes, ". . . bad strategy is the active avoidance of the hard work of crafting a good strategy. One common reason for choosing avoidance is the pain or difficulty of choice. When leaders are unwilling or unable to make choices among competing values and parties, bad strategy is the consequence.

"A second pathway to bad strategy," Rumelt continues, "is the siren song of template-style strategy — filling in the blanks with vision, mission, values and strategies. This path offers a one-size-fits-all substitute for the hard work of analysis and coordinated action. A third pathway to bad strategy is New Thought — the belief that all you need to succeed is a positive mental attitude. There are other pathways to bad strategy, but these three are the most common."

As Rumelt and others emphasize, "A good strategy draws power from focusing minds, energy, and action. That focus, channeled at the right moment onto a pivotal objective, can produce a cascade of favorable outcomes. . . . Like a quarterback whose only advice to teammates is 'Let's win,' bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision and values. Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy." Such focus also forces trade-offs. Deciding what is most important to do requires self-confidence; but deciding what not to do may require even more.

Clarity. One of a CEO's most important roles is to clearly convey where the organization is going and how, in general, it intends to get there. This often takes the form of a vision supported by a set of driving strategies. These need not be inspiring. It is not the job of the CEO to move people to tears or to jump cheering from their chairs. It is the job of the CEO to provide clarity — to describe clearly the destination and the means of getting there.

The CEO should seek every opportunity to restate the vision and strategies, using them to frame every important message and wrapping them into compelling stories that include real people striving to create the organization's future. Consistency is important. Everyone needs to hear the same message time and again. Few will resent or resist strategies that are well-thought-out and clearly articulated. Indeed, absent such clarity, organizations become disoriented and begin to work at cross-purposes. They also become anxious.

Anxiety consumes useful energy and emotion toward no good end. According to Harvard strategy professor Cynthia Montgomery, "A clearly defined strategy steers the company, providing a compass for where you want to go. It makes you a better communicator, giving you the words to articulate what you are doing and why. Your customers and investors will understand you better. Your employees won't have to guess what you're up to and they will know how their work fits into the whole and what will be expected of them."

Cultivate Skills

There are a number of things CEOs can do to become more effective in developing the five characteristics described above and, by so doing, fulfill their responsibilities as their organization's chief strategist:

Think. Athletes are often described as having developed muscle memory. The gymnast on the balance beam has honed her movements into subconscious actions tuned to the challenge at hand. She does that through thousands of iterations, by developing a fine feel for the doable by doing.

Executives can develop their strategic muscle by being intentional and disciplined in looking at situations characterized by a high degree of uncertainty and resistance and asking, "How did that turn out? Why did it turn out that way?" This can be applied to sporting events, business competitions and political contests. The key is to look for patterns that can be translated into principles that can then be used to generate strategies.

Read. When he was CEO of the Cleveland Clinic, Fred Loop spent two hours every day reading, particularly about strategy. As one of the world's best-known heart surgeons leading one of the world's top medical institutions, he could easily have dispensed with this routine. He and his organization were already on top. Why bother looking for new insights? Because curiosity and applied learning are key to maintaining a clear-cut advantage.

CEOs who want some suggestions on what to read can start with any of these authors: Peter Drucker, Joan Magretta, Cynthia Montgomery, Michael Porter, Richard Rumelt and Dan Wolf. Also look beyond management to other fields. For example, insight on "backfires" as a metaphor can be drawn from Norman Maclean's Young Men and Fire.

Participate. There are activities that simulate and stimulate strategic thinking. Chess and the Japanese game of Go develop strategic muscle. So do sports, particularly those that demand fluidity of thinking and action like soccer and hockey. Competitive sailing ups the ante. Not only are there competitors, but wind and water add a degree of uncertainty and resistance not found in most sports. And if you can't play, at least watch. Then ask, "What are the patterns? What are the lessons? How can they be applied?"

Squint. Many dyslexics are described by experts as having a well-developed mechanism for coping with their affliction. They make sense of words by putting them into a broader context that conveys meaning to those words. In other words, they get really good at seeing the big picture.

Toby Cosgrove is dyslexic. He struggled to get into medical school, but became one of the world's most respected heart surgeons as well as a prolific and creative inventor of medical devices. And he has successfully guided one of America's most respected organizations through increasingly tumultuous times. What Cosgrove has and every CEO needs is a practiced ability to squint at a complex situation and see its big patterns, structure and dynamics. Such strategic squinting blurs out the details and can keep a CEO's attention focused on what's most important to the organization's future.